Educational Articles

Dow 30 Earnings: Caterpillar, Inc. - Second Quarter 2010

David Reimer
| July 22, 2010

Machinery giant Caterpillar (CAT - Free Analyst Report) reported strong second-quarter 2010 operating results. Total sales for the period were $10.4 billion, up 30.5% from the prior year and nearly 7% better than our estimate. Share net came in at $1.09, well above the $0.60 showing in the same 2009 quarter and our $0.79 expectation.

The company is realizing favorable demand for its machinery and engines in the mining, energy, infrastructure, power generation and rail transport sectors. Demand is particularly strong in developing countries. Business activity in developed nations, e.g., the United States and Western Europe, is not as strong, but order trends are positive. Too, the completion of dealer inventory reductions that began at the onset of the latest recession supported the good top-line performance. Higher volume, increased prices, and favorable foreign currency translations gave a nice overall boost to Machinery division sales, which were up 55%, year-to-year. Sales growth at the Engine division, was a more modest 3%; currency translation was a negative. Engine growth (42%) was especially good in Latin America and respectable in the Asia/Pacific (17%) and Europe, Africa, Middle East (15%) regions. North America was the laggard in the expansion (4%).

Management is ramping up production to meet higher total demand, while working to keep costs under control and improve cash flow. Caterpillar has raised its 2010 operating guidance. Our revised sales and share-earnings estimates of $40.5 billion (versus $40.0 billion) and $3.50 (versus $2.85), respectively, reflect the midpoints of this new guidance, which might prove conservative, depending on the pace of the global recovery.

Given the share-price rebound of the past 16 months, Caterpillar stock, despite improving business prospects, is not all that appealing on a 3- to 5-year basis. It's best suited to investors seeking short-term gains.

About The Company: Caterpillar is the world’s largest producer of earthmoving equipment. Its major global markets include road building, mining, logging, agriculture, petroleum, and general construction. It manufactures a wide variety of products, including tractors, scrapers, graders, compactors, loaders, off-highway truck engines, and pipelayers. Also makes diesel & turbine engines and lift trucks. Foreign sales account for 67% of the total.